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Does Anyone Really Know How to Reduce Health-Care Spending?

An organization you’ve probably never heard of is working on it.

By Dwyer Gunn


(Photo: Mario Villafuerte/Getty Images)

In 2010, the United States was staring at a two-pronged health-care crisis. Too many people were uninsured and thus vulnerable to crippling medical debt in the event of an emergency. Americans were spending way too much on health care, with no end in sight (which contributed to the high cost of health insurance). Along came the Affordable Care Act to establish a clear (albeit imperfect) solution to the first problem. But its expected effect on the second problem — health-care spending — was a bit murkier.

While the ACA’s health insurance components have gotten most of the attention (and provoked the most controversy), the law actually took several steps to “bend the cost curve” on health-care spending. Chief among them was the establishment of the Center for Medicare and Medicaid Innovation, otherwise known as the “Innovation Center.”

The CMMI was created with unusually broad and flexible powers to identify and rapidly test alternative care and payment models for reducing health-care spending, all while improving quality (or at least not destroying quality) in the three public insurance programs: Medicare, Medicaid, and the Children’s Health Insurance Program. The CMMI’s mandate requires it to either alter or terminate models that don’t work; it also has the power to rapidly scale up successful models. Anyone looking for a true health-care revolution in this country should be paying close attention to the CMMI’s work.

At present, the CMMI is currently testing three different kinds of alternative payment models: the medical home model, the Affordable Care Organization model, and the bundled payment model.

The medical home model is a team-based model (including doctors, nurses, social workers, etc.) that designates the primary-care practice as the “main and central source for delivery and coordination of the majority of health, illness, and wellness care.” The providers are paid a monthly fee for their coordinated efforts and receive traditional fee-for-service payments for care.

The Affordable Care Organization model relies on networks of providers that share accountability for the cost and quality of care, and share in the savings or losses derived from that care.

The bundled payment model, by contrast, provides a budget for a discrete episode of care. The budget for a knee replacement, for example, would cover the fees for the surgeon and anesthesiologist, the hospital stay, and the post-surgical physical therapy. If a team of providers comes in under budget for an episode of care, all the providers share in the savings.

Anyone looking for a true health-care revolution in this country should be paying close attention to the Center for Medicare and Medicaid Innovation’s work.

Both the ACO and bundled payment models assume that requiring providers to share a budget among themselves incentivizes them to collaborate more efficiently and reduce unnecessary or duplicative tests and services.

So are any of these models working? Earlier this year, the Kaiser Family Foundation released a report on the CMMI’s research, which includes some preliminary results on the effectiveness of a variety of different medical home, ACO, and bundled payment models. Kaiser’s researchers found that, while many of the models being tested are improving the quality of care, the overall savings generated is relatively small (with some models generating larger savings than others), although that’s likely due at least in part to the fact that some of the models are still in the early stages of rollout.

The report illustrates both how difficult it is to move the needle on health-care spending and how important it is to test different models. While most of the different medical home models tested generated little savings, for example, one model — Independence at Home — generated $25 million in savings over 8,400 patients in its first year alone.

The CMMI currently has plans to test a number of new payment models in 2016 and 2017, and many of them have been created or adjusted to reflect the concerns raised in previous rounds of design and evaluation. Some of the future ACO and bundled payment models, for instance, will offer advance payments to practitioners to cover some of the start-up costs associated with transitioning to new models. And, beginning in 2016, one new ACO model will allow experienced networks to “assume higher levels of both financial risk and reward than the earlier ACO models” and will offer patients an incentive payment if a percentage of their encounters are with providers within their ACO (Medicare patients are allowed to see doctors outside their ACO if they choose).

Let the health-care revolution continue.